Former IRS Chief: Can't Say How Targeting Happened

WASHINGTON (AP) -- The man who led the Internal Revenue Service when it was giving extra scrutiny to tea party and other conservative groups seeking tax-exempt status told Congress on Tuesday that he knew little about what was happening while he was still commissioner.

Douglas Shulman, who vacated his position last November when his five-year term expired, told the Senate Finance Committee he didn't learn all the facts until he read last week's report by a Treasury inspector general confirming the targeting strategy.

In his first public remarks since the story broke, Shulman said: "I agree this is an issue that when someone spotted it, they should have brought it up the chain. And they didn't. I don't know why."

Shulman was testifying at Congress' second hearing on the episode that has largely consumed Washington since an IRS official acknowledged the targeting and apologized for it in remarks to a legal group on May 10. Shulman and the two officials who testified -- the outgoing acting commissioner, Steven Miller, and J. Russell George, the Treasury Department inspector general who issued the report -- were all sworn in as witnesses, an unusual step for the Finance panel.

Asked by Sen. John Cornyn, R-Texas, whether he owed conservative groups an apology, Shulman said, "I'm certainly not personally responsible for creating a list that had inappropriate criteria on it."

That was a reference to a list of words IRS workers looked for in deciding which groups to screen, a list that included the terms including "tea party" and "patriot."

"I very much regret that it happened and that it happened on my watch," Shulman said.

The testimony by Shulman and Miller drew skepticism from lawmakers of both parties, including critical remarks from people who have been unhesitant to say anything negative about the IRS since its activities were revealed nearly two weeks ago. Republicans openly rejected George's assertion that he has no evidence that the decision to target conservative groups was politically motivated.

A lack of political motivation "is almost beyond belief," said Sen. Mike Crapo, R-Idaho.

George's report blamed ineffective management for allowing agents to inappropriately target conservative groups for more than 18 months during the 2010 and 2012 elections. Shulman was appointed by President George W. Bush and served from March 2008 until last November.

At a separate hearing, Treasury Secretary Jacob Lew said the IRS's actions against conservative groups were "unacceptable and inexcusable."

Lew told the Senate Banking Committee that he has directed the agency's incoming acting director, Daniel Werfel, to hold people accountable and to fix any flaws in IRS management to make sure there is no recurrence of the problems.

Lew said he first learned about the inspector general's investigation in March but that he was unaware of the findings until they became public this month. Lew became Treasury secretary in February, and was White House chief of staff before that.

Shulman said he first learned that something was happening in the spring of 2012.

He said that at that time, he learned that IRS workers were using a list to help decide which groups seeking tax-exempt status should get special attention and knew the term "tea party" was on that list. But he said he didn't know what other words were on that list or the scope and severity of the activity.

He said he took what he thought were the proper steps -- making sure the inspector general was looking into the situation. He said he did not tell Treasury officials about the improper activity.

For more than a year, from 2011 through the 2012 election, members of Congress repeatedly asked Shulman about complaints from tea party groups that they were being harassed by the IRS.

Shulman's responses, usually relayed by a deputy, did not acknowledge that agents had ever targeted tea party groups for special scrutiny. At a congressional hearing March 22, 2012, Shulman was adamant in his denials.

"There's absolutely no targeting. This is the kind of back and forth that happens to people" who apply for tax-exempt status, Shulman said at the House Ways and Means subcommittee hearing.

On Tuesday, Republicans expressed anger that Shulman and Miller didn't reveal the screening of conservative groups to Congress, despite lawmakers' repeated inquiries. Miller learned of the situation in early May 2012.

"Mr. Miller, that's a lie by omission," said Sen. Orrin Hatch of Utah, top Republican on the Finance committee. "There's no question about that in my mind. It's a lie by omission and you kept it from people who have the obligation to oversee this matter."

President Barack Obama has forced Miller to resign, and he is leaving office this week.

Shulman said he didn't later tell lawmakers about the targeting because he didn't have full information about the situation.

"I had a partial set of facts," Shulman said. "Sitting there then, sitting here today, I think I made the right decision" to let George, the inspector general, conduct his audit of the targeting.

Shulman said that when he did finally read about the details of the targeting in the inspector general's report, "I was dismayed and I was saddened."

Hatch and Finance panel chairman Max Baucus, D-Mont., both criticized the agency and said they would investigate how and why the improper screening occurred.

"I intend to get to the bottom of what happened," Baucus said.

The IRS is an independent agency within the Treasury Department. Because of that independent status, the official said Treasury deferred to the IRS in its decision about how to make the targeting public.

George, the Treasury inspector general, says he told Shulman on May 30, 2012, that his office was auditing the way applications for tax-exempt status were being handled, in part because of complaints from conservative groups. However, George said he did not reveal the results of his investigation.

The IRS agents were conducting the screening to determine whether the groups were engaged in political activity. Certain tax-exempt groups are allowed to engage in politics, but politics cannot be their primary mission. It is up to the IRS to make the determination, so agents are supposed to look for clues when reviewing applications for tax-exempt status.

In March 2010, agents starting singling out groups with "Tea Party" or "Patriots" on their applications. By August 2010, it was part of the written criteria for identifying groups that required more scrutiny, according to George's report.

Agents did not flag similar progressive or liberal labels, though some liberal groups received additional scrutiny because their applications were singled out for other reasons, the report said.

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So, you include words and phrases associated with well-known political advocacy groups in your name, and the IRS does some investigation into whether you may be involved in prohibited political advocacy. Go figure.

And I remind you that all of these groups were ultimately granted 501(c)(4) status. If you're looking for a real scandal, start there.

I think the Media Matters situation is arguably debatable. They have a colorable claim to being an educational organization within the scope of the regulation - they have an agenda to be sure, but they limit their substantive communications to discussions of the media per se, rather than particular candidates or issues. Personally I'm not especially comfortable with interpreting the statute broadly enough to encompass Media Matters, but that ship has pretty much sailed. I think the grant of 501(c)(3) status was probably consistent with the way the statute has been interpreted for a while now.

I'm not familiar with the details of the MoveOn application, but on the face of it the result seems outrageous. It simply does not seem like this is the sort of organization that ought to fall within either the spirit or the letter of the statute. I think some "additional scrutiny" of the sort the conservative groups received (and rightly so, in my opinion) would be highly appropriate in that case. Heck, I'm inclined to say simply deny their application - something which, I remind you, occurred to none of the conservative groups.

I think Media Matters could make a strong case to qualify as a (c)(4). Their modus operandi, not endorsing or attacking candidates, fits that definition. Qualifying as a (c)(3) was preposterous. I am aware of no organization as highly politicized that has received a (c)(3) determination. In addition, (c)(3)'s are subject to audits for compliance with limitations that statute sets forth with respect to permitted activities. As out front as they are, it's interesting this hasn't happened.

Actually, a small percentage of the conservative applicants were denied. In addition, after waiting for up to 2 1/2 years in some cases for a determination, some others withdrew their applications out of frustration.